4 Elsa Habte

ASSESSING THE EFFECT OF QUALITY ON CUSTOMER
SATISFACTION: THE CASE OF WEGAGEN BANK
By
Elsa Habte
Addis Ababa University School of Commerce

Marketing Management Graduate Program
May 2014
Addis Ababa, Ethiopia
In Partial Fulfillment of the Requirements for the Award of Masters of Arts

Degree in Marketing Management
By: Elsa Habte
Advisor: Teklegiorgis Assefa (Asst.Prof.)
Addis Ababa University

School of Commerce
Marketing Management Graduate Program
May 2014
Addis Ababa, Ethiopia
ADDIS ABABA UNIVERSITY
SCHOOL OF COMMERCE
MARKETING MANAGEMENT POST GRADUATE PROGRAM

Approved by Board of Examiners
______________________ ___________________
Advisor Signature
______________________ ___________________
Internal Examiner Signature
–––––––––––––––––––––– –––––––––––––––––––
External Examiner Signature
DECLARATION
I Elsa Habte, hereby declare that the thesis entitled “ASSESSING THE EFFECT OF
QUALITY ON CUSTOMER SATISFACTION: THE CASE OF WEGAGEN

BANK”. This work is original in nature and is suitable for submission for the award of Master
of Marketing Management of Addis Ababa University.
Elsa Habte ––––––––––––––––––––– may 2014

Student Signature Date
Email elsahabte1@gmail.com
CERTIFICATION
This is to certify that Elsa Habte has completed her thesis work entitled ASSESSING THE
EFFECT OF QUALITY ON CUSTOMER SATISFACTION : THE CASE

OF WEGAGEN BANK.
As I have evaluated, her research is appropriate to be submitted as a partial fulfillment
requirement for the Award of Degree in Masters of Marketing Management.
Thesis Advisor: ____________________________

Signature and Date
Teklegiorgis Assefa (Asst.Prof.)
Contents pages
Acknowledgments………………………………………………………………………………..iv
Acronym and abbreviation………………………………………………………………….……..v
List of tables…………………………………………………………………………....................vi
List of figures...…………………………………………………………………….………….....vii
Abstract...……….……………………………………………………………………………….viii
CHAPTER ONE
Introduction.....................................................................................................................................1
1.1 Background of the Study.........................................................................................................1
1.2 Statement of the Problem ....................................................................................................... 3
1.3 Research Question………………………………………..…………….……………….……4
1.4 Objectives of the Study........................................................................................................... 4
1.4.1 General Objective................................................................................................................. 4
1.4.2 Specific Objectives............................................................................................................... 4
1.5 Definition of Terms................................................................................................................. 5
1.6 Significance of the Study........................................................................................................ 6
1.7 Delimitation/Scope of the Study............................................................................................. 6
1.8 Limitation of the Study........................................................................................................... 6
1.9 Organization of the Research Report...................................................................................... 7
CHAPTER TWO
Literature Review ........................................................................................................................ 8
2.1 Definition of Service.............................................................................................................. 8
2.2 Characteristics of Services ……………………………....................................................…10
2.3 Definitions of Quality........................................................................................................... 11
2.4 Service Quality Measurement .............................................................................................. 13
2.4.1 SERVQUAL Model......................................................................................................…14
2.4.2 Gronroos’s Methodology...............................................................................................…17
i
2.4.3 Cronin’s SERVPERF........................................................................................................... 17
2.5 The Perceived Service Quality Model.....................................................................................18
2.5.1 Customer Expectation………………………………………………………….…….…..19
2.5.2 Customer Perception......................................................................................................... 20
2.5.3 Customer Satisfaction…....................................................................................................22
2.6 Importance of Quality of Service ........................................................................................... 22
2.7 Service Quality in Banking..................................................................................................... 23
2.8 The Relationship between Service Quality and Customer Satisfaction................................ 24
2.9 Measuring Service Quality via Customer Satisfaction.......................................................... 26
CHAPTER THREE
Research Design and Methodology....................................................................................…..….27
3.1 Research Design ..................................................................................................................... 27
3.2 Sample and Target Population................................................................................................ 27
3.3 Sampling Techniques.........................................................................................................…..28
3.4 Data Sources........................................................................................................................... 28
3.5 Instruments of Data Collection............................................................................................... 29
3.6 Procedure of Data Collection...................................................................................................30
3.7 Methods of Data Analysis....................................................................................................... 30
3.8 Reliability and Validity ..........................................................................................................31
3.9 Research Ethics....................................................................................................................... 32
CHAPTER FOUR
Presentation of Findings and Data Analysis .................................................................................33
4.1 Personal Profiles of the Respondents ......................................................................................34
4.2 Reliability Test........................................................................................................................ 34
4.3 Descriptive Statistics............................................................................................................... 35
4.3.1 Service Quality Assessment................................................................................................. 36
4.3.2 Customer Satisfaction ....................................................................................................42
4.4 Correlation and Regression Analysis ................................................................................44
ii
4.5 Regression Analysis.......................................................................................................... 46
4.6 Interview with Manager ................................................................................................... 49
CHAPTER FIVE..................................................................................................................... 52
Conclusions and Recommendations
5.1 Conclusion ......................................................................................................................... 52
5.2 Recommendations ............................................................................................................. 53
References……………………………………………………………………………………54
iii
AKNOWLOGEMENTS
First and foremost, I would like to thank to the Almighty God, for helping me in every moment. I
also wish to express my sincere thanks and gratitude to my advisor Teklegiorgis Assefa
(Asst.Prof.) for his encouragement and helpful advices during the whole process of research
writing. Thank you for supporting and valuable insight. I would like to thank my examiners Mr.
Mesfin W. and Dr. Mihiret B. for their constructive and interesting comments on the whole parts
of the study which helps to me to modify the paper in a good manner.
I would also like to thank to the Marketing manager Ato Bahiru Demissie for their kindly
cooperation in providing information that is relevant for this study and moral support.
I also wish to thank the staff of Wegagen bank especially the five branches for their assistance in
the distributing, and collection of the questions in completing the research survey. I also thank all
respondents for their cooperation.
I would like to thanks Ato Hailu and my colleagues for their assistance of useful information.
Finally, I deeply wish to pay highest gratitude to my parents for their support, encouragement
and advice.
iv
Acronyms and Abbreviation
SERVQUAL –service quality measurement tool
SERVPERF service - service performance
WB - Wegagen Bank
v
List of tables pages
Table 2.1 Nature of the Service Act…..…………………………………………………………9

Table 4.1 Response Rate………………………………………………………………….……32
Table 4.2 Sex and Age…............................................................................................................33
Table 4.3 Educational Status.……………………..…………………………………………...34
Table 4.4 Cronbach’s Alpha test for Independent Variable ..……..…..………………………35
Table 4.5 Service Tangibility..……………..………………….…………..……….…….…….36
Table 4.6 Service Reliability……………………………………………….………………......37
Table 4.7 Responsiveness Dimension……………………………………….…………………38
Table 4.8 Service Assurance………………………………………………….……………..…39
Table 4.9 Service Empathy…………………………………………………….…….……..….40
Table 4.10 Customer Satisfaction based on Amount of Measurement Scale…….…………...44
Table 4.11 Pearson’s Correlation Matrix………………………………………….……….….45
Table 4.12 Model Summary……………………………………………………….……….….46
Table 4.13 ANOVA………………………………………………………………….………..47
Table 4.14 Estimated Unstandardized and Standardized Regression Coefficient…….……...48
vi
List of figures
Figure 2.1 Dimension of service quality….......................................................................15
vii
ABSTRACT
In today’s world business environment satisfying a customer is the ultimate goal and objective of
all businesses. Customer satisfaction is a fundamental marketing construct especially for service
producing companies and they have adopted it as a high priority operational goal.
The main purpose of this study was to assess service quality and examine the impact of
SERVPERF dimensions on the customer satisfaction at Wegagen Bank. The researcher employed
questionnaire survey approach to see the attitude of the customers of Wegagen Bank and in this
case SERVPERF instruments originally proposed by Gronroos (1990) and more developed by
Cronin and Taylor (1992) applied the dimensions in designing questionnaire. In depth Interview
was employed to collect data from the organization marketing manager. The researcher took 250
sample respondents from five branches; the sampling method applied was convenience and
purposive sampling. The data analysis was conducted through statistical techniques such as
descriptive statistics, Bivariate correlations and multiple linear regressions by using SPSS and
Microsoft Excel.
The finding indicates that the service quality of the organization is good based on the result of
those dimensions. From this, the highest perceived service quality is observed in responsiveness
and assurance. The regression result shows empathy has highest impact on customer
satisfactions followed by assurance and responsiveness. From the data collected and result of
the analysis, the study indicate that the five dimensions of service quality are positively
correlated with the bank customer satisfaction, For this, the bank is advised to give strong
emphasis to all the service quality dimension in maintaining and improving the service quality
the bank provides.
Key words: Service quality, customer satisfaction, SERVPERF dimensions
viii
Chapter one
Introduction
1.1 Background of the Study

In service industries, globally, the subject of service quality remains critical as businesses strive
to maintain a comparative advantage in the marketplace, since financial services, particularly
banks compete in the marketplace with generally undifferentiated products, and service quality
becomes a primary competitive weapon. It is true that structural changes have resulted in banks
being allowed a greater range of activities, enabling them to become more competitive with non-
bank financial institutions (Mohammed H., and Shirley L., 2009).
Currently, technological changes are causing banks to rethink their strategies for services
offered to both commercial and individual customers. Moreover, banks that excel in quality
service can have a distinct marketing edge since improved levels of service quality are related to
higher revenues, increased cross-sell ratios and higher customer retention, and expanded market
share. Moreover, the banks understand that customers will be satisfied if they can produce
greater value than competitors. In addition, higher profits will be earned by the banks if they can
position themselves better than their competitors within a specific market. Therefore, banks
should focus on service quality as a core competitive strategy (Juan C. et al 2006).
Customer satisfaction is the concept that occupies a central position in marketing thought and
practice (Potluri & Mangnale, 2010). Customer satisfaction is actually how customer evaluates
the ongoing performance (Gustafsson, Johnson & Roos, 2005) and it is a critical issue in the
success of any business system in today’s business world (Ahmed et al., 2010).
Customer satisfaction is influenced by various factors. Service quality is the main driving factor
for satisfaction of customers in service sectors (Andaleeb and Conway 2006). Therefore a firm
should concentrate on the improvement of service quality and charge appropriate fair price in
1
order to satisfy its customers who would ultimately help the firm to retain its customers
(Gustafsson et al., 2005).
Service quality is the result of the comparison that customers make between their expectations
about a service and their perception of the way the service has been performed (Gronroos, 1984;
Parasuraman et al., 1985, 1988). A number of experts define service quality differently. It is the
differences between customers’ expectation of services and their perceived service (Parasuraman
et al. (1985) if the expectation is greater than the service performance, perceived quality is less
than satisfactory and hence, customer dissatisfaction occurs. Other defines service quality as the
extent to which a service meets customers’ need and expectation (Keir, C and Mitchell 1990),
(Dotchin and Oakland 1994), and (Asubonteng et al. 1996).
Service quality has become a significant differentiator and the most powerful competitive
weapon which many leading service organizations possess (Berry et al. 1998), Leading service
organizations strive to maintain a superior quality of service in an effort to maintain a satisfied
customer base.
To measure the service quality researchers used SERVQUAL and Gronroos’s model in various
aspects of business environment. However, the dimension of quality and the measurement
approach of the service quality and its relationship with customer’s satisfaction are still been
unsettled (Owlia and Aspinwall 1996; Parasuraman et. al., 1993; Cronin, Taylor, 1994; Carman,
1990; Buttle, 1996). In spite of the ongoing debate and development of new theory, numerous
researchers have agreed on the significances of service quality and its impact on customer
satisfactions (Arambewela, 2006; Ben, 2007; Boshoff, 2004). That satisfaction is a function of
the disconfirmation of performance from customer’s expectation (Oliver 1980) Some other
theorists also mentioned the same concept that the quality plays a major role on consumer
satisfaction (Omar and Schiffman, 1995, Gremler et.al., 2001, Radwin, 2000; Kumar et.al.,
2008).
Customers perceive services in terms of the quality of the service and how satisfied they are
overall with their experiences (Zeithaml and Bitner, 2003). Satisfaction is the consumer’s
2
fulfillment response (Oliver, 1997). Recently, there has been a keen interest, especially in
banking, where banks are looking at the life time value of the customer base rather than focusing
on the cost of transactions.
Good knowledge of the characteristics and advantages of service quality on the part of banks did
contribute for their success and their persistence in the international banking competitive
environment (Huseyin, et al., 2005). Thus, the quality of banking service was an integrative
assessment of the services offered to the customers, for clients were considered to be
independent individuals with various requirements on the basis of which services were provided,
based on certain specification.
Another study on banking sector argued that “…the positive effects exerted by e-service quality
on customers’ satisfaction while these effects increase the bank’s benefits” (Al-Hawari and Ward
2006). Although there were empirical studies which demonstrated that customer satisfaction
completely mediated the relationship of service quality and loyalty that banks had to care about
the quality of their services since this quality was considered the essence or core of strategic
competition (Ibánez, et. al., 2006; Lanka, et. al., 2009; Hossain and Leo 2009).
The main purpose of this research is to assess service quality of Wegagen Bank and its effect on
customer satisfaction. Wegagen Bank is a privately owned share company which started
operations on June 11,1997 with a subscribed capital of birr 60 million and a paid up capital of
birr 30 million, has by now 2,154 shareholders and its total capital (including premium and
reserves) reached birr 1.4 billion(April 30,2013).
Wegagen Bank offers full- fledged banking services and product for the customer by improving
the service offers and adopting new technology from time to time in order to enhance the service
quality and to increase customer satisfaction which helps to achieve customer retention and the
long term success of the organization. The organization performs its activity to provide a wide
range of quality banking service through a dynamic workforce and up-to-date IT solutions to
satisfy the desires of all stakeholders.
3
1.2 Statement of the Problem
The financial services industry is changing rapidly (Firdaus Abdullah, Rosita Suhaimi, Gluma
Saban and Jamil Hamali, 2011). Technology, government regulation, and increasing customer
sophistication are forcing financial service institutions to re-evaluate their current business
practices. Financial institutions across the globe are re-examining how they are meeting their
customer’s needs today and developing business plans needed to align them strategically to
remain competitive and profitable in the future.
As any service industry, Wegagen Bank also should provide a quality service that satisfies its
customer needs and to achieve the long run objective of the organization. In order to achieve this
objective it requires continuous improvement of the service and tracking customer requirements
periodically or continuously besides to achieving the objective it help to retain customers for
long periods and satisfying their requirements in the best way by achieving service excellence.
Research questions
What is the overall satisfaction of customers with the service provided by Wegagen Bank?
1. What are the major factors that affect or determine service quality in the Wegege Bank?
2. How does service quality relate to customer satisfaction in the Wegagen Bank?
3. Which service quality dimension is getting the highest perceived quality by the customer
of Wegagen Bank?
4. What is the overall level of satisfaction of customers with Wegagen Bank?
5. What are the dominant SERVPERF dimensions in affecting customer satisfaction at
Wegagen Bank?
1.3 Objectives of the study

1.3.1 General Objective
The main objective of the study is to assess service quality and its effect on customer satisfaction
at Wegagen Bank.
4
1.3.2 Specific Objectives
1. To describe the dominant SERVPERF dimensions and their impact on customers’
satisfaction towards Wegagen Bank
2. To examine the SERVPERF dimensions that affect service quality in Wegagen Bank
3. To assess the relationship between service quality dimensions and customer satisfaction
towards Wegagen Bank
4. To assess whether perceived SERVPERF dimensions are applicable or not at Wegagen
Bank
5. To describe the level of customer satisfaction towards Wegagen Bank
6. To suggest possible courses of action that can help the organization to improve its service
delivery
1.4 Definition of Terms

Service quality; means the difference between the customer’s expectation of service and their
perceived service. In this study, the assessment standards of Zeithaml, Parasuraman & Berry
(1990) will be used, which consist of five dimensions: tangibility, reliability, responsiveness,
assurance, and empathy.
Customer Satisfaction; means an individual’s feeling of pleasure (or disappointment) resulting

from comparing the perceived performance or outcome in relation to the expectation (Oliver,
1981; Brandy and Robertson, 2001; Lovelock, Patterson and Walker, 2001).
SERVPERF; is a tool, originally proposed by Gronroos (1990) and more developed by Cronin
and Taylor (1992) that is used to measure service quality using five dimensions (RATER). It is
based on the “performance only” perspective and service quality as customers’ evaluation of the
service encounter. As a result, SERVPERF uses only the performance items of the SERVQUAL
scales.
SERVQUAL; a self-administered questionnaire purported to be a generic measure of service

quality.
5
Tangibles: “Appearance of physical facilities, equipment and appearance of personal and
communication materials”. This includes organization’s physical facilities, their equipment and
appearance of their personnel and communication materials used to promote their
products/services.
Reliability: “Ability to perform the promised service dependably and accurately”. It means that
the service organization performs the service right the first time and honors all its commitments.
Responsiveness: “Willingness to help customers and provide prompt service”. This refers
timeliness and promptness in providing service.
Assurance: “Knowledge, competence and courtesy of employees and their ability to inspire trust
and confidence in customers towards to the service firms”. Competence refers to the possession
of required skills and knowledge performs the service. Courtesy involves the politeness, respect
friendliness, honesty and trust worthiness of contact personnel.
Empathy: “Caring and individualized attention that the firm provides to its customers”. It
includes approachability, ease of contact of service providers and making of efforts to understand
the customer’s needs.
1.5 Significance of the Study

This study will help Wegagen Bank managers and employees to focus on how to provide service
to satisfy customer. The researcher hopes that from the suggestions and recommendations the
managers of WB can make a better decision in order to become effective on handling their
customer. This thesis will also help other researchers to conduct further studies on service quality
and its effect on customer satisfaction. In addition to this, this thesis will help readers to gain
knowledge and better understanding in the area of service quality and customer satisfaction.
1.6 Scope of the Study

The researcher believes that there are many factors that need research /investigation on customer
satisfaction. However, this study was focued only on service quality at Wegagen Bank. This
6
study is geographically limited to Wegagen Bank in Addis Ababa City, specifically the five
branches (Bole, Meskel square, gofa, Gergi, Beklobet). Because of this the findings of this study
may not be generalized to other area branches of Wegagen Bank. However, doing in all service
centers may be beyond the ability and financial capacity of the researcher. Excluding other bank
branches may limit the generalizability of the results of this research.
1.7 Limitation of the Study

Actually, it is rare to conduct a study without any limitations and challenges. Wegagen Bank has
around 90 branches all over Ethiopia. From this 43 branches are in Addis Ababa. However, the
study was conducted in five branches in Addis Ababa because of time constraint and other
resource limitations the results of the study may not be generalized to all branches and other
banks.
1.8 Organization of the Research Report

This research report comprises five chapters, which include the following:
The first chapter contains introduction part; this includes background of the study, statement of
the problem, research questions, objective of the study, significance of the study, and scope of
the study, limitation of the study and organization of the report. The second chapter presents
theories and previous studies related to the topic (literature review). The third chapter contains
research methodology and design used in this study. It describes the type and design of the
research; the subject and participants of the study; data source used for the study as well as the
data collection tools applied and methods of data analysis are explained. In the fourth chapter
data analysis, presentation and interpretation is presented. In the fifth chapter, summary of the
findings was made from chapter four and conclusion is also presented.
7
Chapter two
Literature Review
2.1 Definition of service
A service is any activity or benefit that one party can offer to another which is essentially
intangible and does not result in the ownership of anything. The advance economies of the world
are now dominated by services and virtually all companies view services as critical to retaining
their customers today and in the future. Even manufacturing companies that, in the past, have
depend on their physical goods for their existence but now their come to see and recognize that
service provides one of their few sustainable competitive advantages (Zeithaml& Bitner, 2003).
It is important to distinguish between a service and goods. Goods are most tangibles (an object)
while services are more of an act (a deed or performance). There are many definitions of services
in the literature which focus on different characteristics of service and depend on the author and
focus of the research (Gronoors, 2001). However, one of the most important and unique
characteristics of services which has to be raised is that services are process, not things.
Put in the simplest terms, “services are deeds, processes and performances”, (Zeithaml and Berry,
2003). Berry define service as “Service is an activity or benefit that one party can offer to another
that are essentially intangible and does not result in the ownership of anything and its production
may or may not be tied to a physical product”(Palmer and Cole 1995). A service is an intangible
product involving a deed, a performance or an effort that cannot be physically possessed (Zeithaml
and Berry, 2003). Services are a form of product that consist of activities, benefits, or satisfactions
offered for sale that are intangible and do not result in ownership of anything (Kotler &
Armstrong, 2004). Services are bought on the basis of promises of satisfaction (Dibb, S., Simkin,
L., Pride, W. & Ferrel, O., 2001). Promises with the images and appearances of symbols help
consumers make judgments about tangible and intangible products (Voss, G.B., Parasuraman, A.,
Grewal, D., 1988). One of the comprehensive definitions of services is:
8
“Services are all economic activities whose output is not a physical product or construction, is
generally consumed at the time it is produced, and provides added value in forms such as
convenience, amusement, timeliness, comfort or health. That is essentially intangible concerns of
its first purchaser” (Zeithaml & Bitner, 2003).
Table 2.1: Understanding the nature of the service act
NO Characteristics Resulting implications
1. Intangibility - Service cannot be inventories

- Service cannot patented
- Service cannot be readily
- Displayed or recommended
- Pricing is difficult
1. Heterogeneous - Service delivery and CS depend on employee action

- Service quality depends on many uncontrollable factors
- There is no sure knowledge that the service delivered
matches what was planned and promoted
2. Inseparability - Simultaneous production and consumption

- Customers participate in and affect the transaction
- Customers affect each other
- Employees affect the service outcome
- Decentralization may be essential mass production is difficult
3. Perishable - It is difficult to synchronize supply and demand with service
- Service cannot be returned or resold
Source: Zeithaml and Berry,
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2.2 Characteristics of Services
Service marketing is distinct from goods marketing (Dibb et. al, 2001). To understand the nature
of services marketing, it is necessary to appreciate the particular characteristics of services (Dibb
et. al., 2001). Service have four intrinsic characteristics that leads to different consumer
perceptions and behavior makes it more difficult to evaluate quality and in turn making it more
challenging and complicated to achieve customer satisfaction and establishing competitive
advantage. Thus, services managers must deeply understand them to survive in the complex
service environment. The four basic characteristics of service are: Intangibility, Inseparability,
Perish ability, and Heterogeneity.
Intangibility
Services differ from goods most strongly in their intangibility (Dibb, S., Simkin, L., Pride, W.
and Ferrel, O.C, 2001). Intangibility stems from the fact that services are performances. They
cannot be seen, touched or smelled, nor can they be possessed. Intangibility also relates to the
difficulty that consumers may have in understanding service offerings (Dibb et. al., 2001).
Services have a few tangible attributes, called search qualities that can be viewed prior to
purchase, such as neatness of nurses and Doctors, cleanliness of the facilities such as waiting
stations, toilets and the like.
When consumers cannot view a service product in advance and examine its properties, they may
not understand exactly what is being offered (Dibb et. al., 2001). On the other hand, services are
high in experience and credence qualities.
Experience qualities are those qualities that can be assessed only after purchase and consumption
these include characteristics such as taste or duration of well-being. Credence qualities are those
qualities that cannot be assessed even after purchase and consumption for examples results of
medical procedures. Few customers possess medical skills sufficient to evaluate whether the
service is or was necessary and performed in a proper manner. (Zeithaml, et al, 1994).
10
Inseparability
Inseparability refers to the notion that, in many service operations, production and consumption
cannot be separated; that is a service is to a greater extent consumed at the same time as it
produced (Oliver, 1980). Unlike most goods that are produced first then sold and consumed,
most services are sold first and then produced and consumed simultaneously (Zeithaml and
Bitner 2003) e.g. the doctor cannot possibly perform the service without the patient’s presence,
and the consumer is actually involved in the production process (Dibb et. al., 2001).These
characteristics of service makes it difficult to achieve standardization and economies of scale
through centralized production.
Perishability
Perish ability refers to the fact that unlike physical goods, services cannot be saved, stored,
resold, or returned (Zeithaml and Bitner2003). Unused capacity on one occasion cannot be stock
pilled or inventoried for future occasions, because production and consumption are simultaneous.
Heterogeneity
Heterogeneity refers to the variability in the quality of service, since most services are labor
intensive, they are susceptible to heterogeneity. For the service to be provided and consumed the
client physically meets and deals directly with the service providers personnel. Direct contact
and interaction are distinguishing features of services. People typically perform services, and
people do not always perform consistently. It is also true that the characteristics of services
themselves make it possible for marketer to customize their offerings to consumers. In such
cases, services marketers often face a dilemma; how to provide efficient, standardized service at
some acceptable level of quality while simultaneously treating each customer as a unique person
(Dibb et. al., 2001).
11
2.3 Definitions of service Quality
Quality has been defined differently by different authors. Some prominent definitions include
conformance to requirements’ (Crosby, 1984), ‘fitness for use’ (Juran, 1988) or ‘one that
satisfies the customer’ (Eiglier and Langeard, 1987). As per the Japanese production philosophy,
quality implies ‘zero defects’ in the firm’s offerings. Though initial efforts in defining and
measuring service quality emanated largely from the goods sector, a solid foundation for
research work in the area was laid down in the mid-eighties by Parasuraman, Zeithaml and Berry
(1985). They were amongst the earliest researchers to emphatically point out that the concept of
quality prevalent in the goods sector is not extendable to the services sector.
Being inherently and essentially intangible, heterogeneous, perishable, and entailing simultaneity
and inseparability of production and consumption, services require a distinct framework for
quality explication and measurement. As against the goods sector where tangible cues exist to
enable consumers to evaluate product quality, quality in the service context is explicated in terms
of parameters that largely come under the domain of experience’ and ‘credence’ properties and
are as such difficult to measure and evaluate (Parasuraman, Zeithaml and Berry, 1985; Zeithaml
and Bitner, 2001).
One major contribution of Parasuraman, Zeithaml and Berry (1988) was to provide a terse
definition of service quality. They defined service quality as ‘a global judgment, or attitude,
relating to the superiority of the service’, and explicated it as involving evaluations of the
outcome (i.e., what the customer actually receives from service) and process of service act (i.e.,
the manner in which service is delivered). In line with the propositions put forward by Gronroos
(1982) and Smith and Houston (1982), Parasuraman, Zeithaml and Berry (1985, 1988) posited
and operationalized service quality as a difference between consumer expectations of what they
want’ and their perceptions of ‘what they get.’ Based on this conceptualization and
operationalization, they proposed a service quality measurement scale called ‘SERVQUAL.’
The SERVQUAL scale constitutes an important landmark in the service quality literature and
has been extensively applied in different service settings. Defining service quality and its
components in a form that is actionable in the workplace is an important endeavor that any
12
business company cannot take lightly. Moreover, many scholars agree that service quality can be
decomposed into two major dimensions (Gro¨nroos, 1984; Lehtinen and Lehtinen, 1982). The
first is referred to by Zeithaml et al. (1985) as “outcome quality” and the second by Gro¨nroos
(1984) as “technical quality.” However, the first dimension is concerned with what the service
delivers and on the other hand; the second dimension is concerned with how the service is
delivered: the process that the customer went through to get to the outcome of the service.
Without any doubt, service quality is very important component in any business related activity.
This is especially so, to marketer a customer’s evaluation of service quality and the resulting
level of satisfaction are perceived to affect bottom line measures of business success (lacobucci
et al., 1994). Customer expectations are beliefs about a service that serve as standards against
which service performance is judged (Zrithaml et al., 1993); which customer thinks a service
provider should offer, rather than on what might be on offer (Parasuram et al., 1988). To some,
service quality can also be defined as the difference between customer’s expectations for the
service encounter and the perceptions of the service received. According to the service quality
theory (Oliver, 1980), it is predicted that customers will judge that quality as ` low` if
performance does not meet their expectations and quality as `high` when performance exceeds
expectations. Closing this gap might require toning down the expectations or heightening the
perception of what has actually been received by the customer (Parasuraman et al., 1985).
According to Gronroos (1982), perceived quality of a given service is the result of an evaluation
process since consumers often make comparison between the services they expect with
perceptions of the services that they receive. He concluded that the quality of service is
dependent on two variables: Expected service and Perceived service. Quality spells superiority or
excellence (Taylor and Baker, 1994) (Zeithaml, 1988), or, as the consumer’s overall impression
of the relative inferiority / superiority of the organization and its services (Bitner and Hubbert,
1994; Keiningham et al., 1994-95). Consumer behavioural intentions are also influenced by the
standards of service quality (Bitner, 1990; Cronin and Taylor, 1992, 1994; Choi et al., 2004).
13
2.4 Service Quality Measurement
Since service quality attributes are not expected to be equally important across service industries,
it has been suggested to include importance weights in the service quality measurement scales
(Cronin and Taylor, 1992; Parasuraman, Zeithaml and Berry, 1995, 1998; Parasuraman, Berry
and Zeithaml, 1991; Zeithaml, Parasuraman and Berry, 1990).
In the empirical literature, there are many alternative service quality models and instruments
developed for measuring service quality. Sasser et al. (1978) suggested three different attributes
(levels of material, facilities, and personnel) all apparently dealing with the process of service
delivery. Gronroos (1984) argued that service quality can be divided into two generic
dimensions: technical quality (what is provided) and functional quality (how the service is
provided), with image quality (the organization’s reputation for quality) mediating the impact of
these two dimensions on overall perceived quality.
Subsequently, Gronroos (1990) identified six specific dimensions viz., professionalism and
skills, reliability and trustworthiness, attitudes and behavior, accessibility and flexibility,
recovery, and reputation and credibility, on which service quality could be measured. However,
these dimensions have not been subject to any rigorous empirical testing, although a number of
studies have used scales based on such principles (e.g., Lehtinen and Lehtinen, 1991). Lehtinen
and Lehtinen (1982) discussed three dimensions viz., physical quality, involving physical
aspects; corporate quality, involving a service firm’s image and reputation; and interactive
quality, involving interactions between service personnel and customers.
2.4.1 SERVQUAL model

Although the measurement of service quality was hard to pin down due to the service
characteristics involving intangibility, perishability, inseparability, and heterogeneity,
researchers had continuously investigated and contributed to this area. Among others,
Parasuraman, Zeithaml, and Berry have been widely recognized for their service quality battery.
Their significant contribution was the development of a service quality measurement, called
“SERVQUAL”, based on the original conceptual gap model of service quality (Parasuraman et
14
al., 1985; Parasuraman et al., 1988: Parasuraman, et al, 1991). The SERVQUAL was seen as a
generic service-quality measurement tool for services industries (Lovelock, 2001).
SERVIQUAL is a multi-item scale developed to assess customer perceptions of service quality

in service and retail business. Originally developed from the GOP model , SERVIQUAL took
shape and was grouped in to two statements , one to measure expectations concerning general
factors about the company while the other measure perception about the particular firm whose
service quality was being evaluated. Furthermore these items were grouped in to following five
distinct dimensions; (Zeithaml et al, 1988)
Figure 2.1 Dimension of service quality
Service Quality
- Tangibility
Customer
- Reliability
Satisfaction
- Responsibility
- Assurance
- Empathy
Source: Zeithaml, and Betner, 2003
Tangible: encompasses physical facilities, equipment, and appearance of personnel.
Reliability: ability to perform the promised service dependably and accurately.
Responsiveness: reflects the willingness to help customers and provide prompt service.
Assurance: involves knowledge and courtesy of employees and their ability to inspire trust and
confidence.
15
Empathy: which is caring, individualized or customized attentions the organization provides its
customers.
SERVIQUAL stand for service quality as the discrepancy between a customer’s perceptions of
the service received, requiring respondents to answer questions about both their expectation and
their perceptions. (parasuraman et al, 1988)
The purpose of SERVIQUAL is to serve as a diagnostic methodology for uncovering wide areas
of an organization’s service quality weaknesses and strength. The SERVIQUAL instrument
produces a systematic, multi-stage, and interactive process that evolves from the identified
dimensions and items with in that correspond to the specific companies and industries. (Zeithaml
et al, 1988. The SERVIQUAL instrument is designed for use in any kind of service business and
provides a basic skeleton though its expectation / perceptions format, encompassing statement
for each of the five dimensions. (parasuraman et al, 1988).
The SERVQUAL was criticized for its validity, predictive power, and length. The validity of
some dimensions was doubted but the original developers argued their dimensions were
conceptually distinguished, but somewhat interrelated. The empirical research by Carmen (1990)
cited in Cronin and Taylor (1992) commented on the validity and applicability of the
SERVQUAL instrument. Its dimensions were criticized for not being generic enough that they
could be used without adding new items or factors which were considered potentially important
to the quality of given service firms. The empirical findings of Cronin and Taylor (1992) found
the inconsistency of item scales defining service quality in different industries. In fact,
Parasuraman and colleagues had recognized this limitation and suggested other researchers to
consider minor modifications of their instrument to a particular service industry.
Additionally, service organizations with multiple service functions were recommended to use the
instrument separately to evaluate the service quality of each function (Carmen, 1990) cited in
Cronin and Taylor (1992). Concerns over handling the expectations were also noted because the
expectation responses were not practically effective. The method of asking respondents was
questionable. Specifically, a problem might occur from some respondents who might be unable
to establish the expectation due to a new experience or no communication with other sources.
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The extension of arguments over the SERVQUAL provided more insights into the evaluation of
service quality. Cronin and Taylor (1992 & 1994) further argued that the SERVQUAL was an
inappropriate instrument due to its inadequate conceptualization and operationalization of service
quality. They pointed out conceptual and operational flaws of the SERVQUAL, particularly its
validity. Parasuraman et al. (1994) argued that the concerns of Cronin and Taylor, and Teas over
the validity and other suspected deficiencies of the SERVQUAL were not warranted. Despite
these debates, more studies were conducted and made the measure more well-established.
Hoffman and Bateson (1997) as cited in Juan C. et al (2006) mentioned the critique about the
predictive power of the SERVQUAL (measuring both expectation and perception): that its
ability to predict customer purchase intention was less than the modified instrument that
measured only the perception of service performance. Service quality required customer
satisfaction as a mediating variable that affected purchase intention. Cronin & Taylor (1992)
stated, “Service quality is an antecedent of consumer satisfaction and that consumer satisfaction
exerts a stronger influence on purchase intentions than does service quality.” They suggested for
managerial purpose the customer satisfaction program should be more emphasized than
strategies that focused exclusively on service quality.
2.4.2 Gronroos’s Methodology
Gronroos (1984) relates definition of service quality with the result of the comparison that
customers make between their expectations about a service and their experience of the way the
service has been performed.
According to Gronroos (1984), services are produced, distributed, and consumed in the
interaction between the service provider and the service receiver. Accordingly, services must be
viewed from an interactive perspective.
The model proposed by Gronroos (1984, 1990) focuses on the role of technical quality (or
output) and functional quality (or process) as occurring prior to and resulting in outcome quality.
In the model, technical quality refers to what is delivered to the customer while functional
quality is regarding with how the result of the process was transferred to the customer. The
model states that the consumer is not interested only on what he/she receives as an outcome of
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the production process, but also on the process itself. The perception of the functionality of the
technical outcome (technical quality) is a major determinant of the way he/she appreciates the
effort of the service provider.
2.4.3 Cronin’s SERVPERF

SERVQUAL grounded in the Gap model, measures service quality as the calculated difference
between customer expectations and performance perceptions of a service encounter
(Parasuraman et al., 1988, 1991). Cronin and Taylor (1992) challenged this approach and
developed the SERVPERF scale based on Parasuraman's SERVQUAL methodology which
directly captures customers’ performance perceptions in comparison to their expectations of the
service encounter.
SERVPERF only measures performance perceptions and operationalizes service quality as

customers’ evaluations of the service encounter. It uses only performance data because it
assumes that respondents provide their ratings by automatically comparing performance
perceptions with performance expectations. As a result, SERVPERF uses only the performance
items of the SERVQUAL scale (Brady et al., 2002; Cronin and Taylor, 1992, 1994). Arguments
in favor of SERVPERF are based on the notion that performance perceptions are already the
result of customers’ comparison of the expected and actual service (Babakus and Boller, 1992).
Therefore, performance only measures should be preferred to avoid redundancy. Thus,

SERVPERF assumes that directly measuring performance expectations is unnecessary. Cronin
and Taylor (1992) built their argument for the superiority of SERVPERF over SERVQUAL by
empirically showing that SERVPERF is a better predictor of overall service quality than
SERVQUAL. Nevertheless, many authors concurred those customer assessments continuously
provided services may depend solely on performance. Hence, the authors suggesting that
performance-based measures explain more of the variance in an overall measure of service
quality. These findings are consistent with other research that have compared these methods in
the scope of service activities, thus confirming that SERVPERF (performance-only) results in
more reliable estimations, greater convergent and discriminate validity, greater explained
18
variance, and consequently less bias than the SERVQUAL and EP scales (Cronin and Taylor,
1992; Parasuraman et al., 1994).
Whilst its impact in the service quality domain is undeniable, SERVPERF being a generic
measure of service quality may not be a very adequate instrument by which to assess perceived
quality. This research bears on these conclusions and adopts the performance-based SERVPERF
Paradigm. In general, SERVQUAL is a measurement of service quality based on the difference
between the customer’s expectations of the quality of service he/she will receive, and his or her
perceptions of the service received. SERVPERF, in contrast, is a performance-only measurement
of service quality (Zhou, 2004).
2.5 The Perceived Service Quality Model

The service quality construct is mostly conceptualized in the context of service marketing
literature (Lee, Lee and Yoo 2000). Therefore, it deals with the concept of perceived service
quality. According to Zeithaml, Parasuraman and Berry (1990), perceived service quality is the
extent to which a firm successfully serves the purpose of customers. Customers determine the
perceived or cognitive value of service based on their experience with the service delivered.
Ghobadian, Speller and Jones (1994) stated that customers’ expectations, service delivery
process and service outcome have an impact on perceived service quality. Yoo and Park (2007)
found that employees, as an integral part of the service process, are a critical element in
enhancing perceived service quality.
Furthermore, Edvardsson (2005) pointed out that service quality perceptions are formed during
the production, delivery and consumption process. The author concluded that customers’
favorable and unfavorable experience, as well as their positive and negative emotions may have
an important impact on perceived service quality. Similarly, O’Neill and Palmer (2003) have
reported that customers’ perceptions of service quality may, to a large extent, be influenced by
the degree of their prior experience with a particular service.
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2.5.1 Customer’s Expectation
Customers’ expectation is what the customers wish to receive from the services. Expectations are
the results of prior experience with the company’s products. Singh and Khanduja (2010)
proposed that customers, expectation is formed by many uncontrollable factors which include
previous experience with other companies, and their advertising, customers, psychological
condition at the time of service delivery, customer background and values and the images of the
purchased product. In addition, Zeithaml et al. (1990) stated that customer service expectation is
built on complex considerations, including their own pre-purc hase beliefs and other people’s
opinions. Similarly, Miller also stated that customers, expectation related to different levels of
satisfaction. It may be based on previous product experiences, learning from advertisements and
word-of-mouth communication.
The diversity of expectation definitions can be concluded that expectation is uncontrollable

factors which including past experience, advertising, customers perception at the time of
purchase, background, attitude and product’s image. Furthermore, the influences of customer’s
expectation are pre-purchase beliefs, word of mouth communications, individual needs,
customers’ experiences, and other personal attitudes. Different customers have different
expectation based on the customer’s knowledge of a product or service. Studies supported that
expectations precede satisfaction for instance: Turel and Serenko (2004) found in Canada that
perceived expectations are positively correlated with customer satisfaction. Anderson, Fornell
and Lehmann (1994), who conducted investigation on Swedish firms, argue that there is a
positive and significant relationship between expectations and customer satisfaction.
2.5.2 Customer Perception

Perception is a way of forming impressions about oneself, other people and daily experience. It
also serves as a screen or filter through which information passes before it has an effect on
people. Even though it is subjective the quality or accuracy of a person’s perceptions has a major
impact on his or her responses to a given situation. According to Mitchel (1978: as cited in
Mussie 2010) perceptions are those processes that shape and produce what one actually
experiences. Since perceptions are influenced by many external and internal factors such as
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cultural, social, psychological and economic, the ways in which the customer perceives services
are highly subjective. What a customer perceives can differ from objective reality.
According to disconfirmation theory, the extent of satisfaction or dissatisfaction that a consumer

has with a particular service encounter is determined by the difference between the customer
expectations of performance and the actual perceived performance of the service (Oliver, 1996:
cited in Samuel 2006).
Any difference between them is referred to as disconfirmation. If the service experienced is

better than expected, then positive disconfirmation or high levels of satisfaction will result. If,
however, the service performance falls short of what was expected, then negative
disconfirmation or dissatisfaction will result.
Therefore, it is imperative to understand how consumers perceive the quality of the product
offering, including the service element, and how these perceptions impact upon the consumer’s
ultimate purchase decision. Having understood the consumers’ perception of quality the
organization should be able to identify whether or not a gap exists between the customers’
expectation and the manager in the development of appropriate managerial quality systems,
which should maximize consumer satisfaction. The needs of survival and prosperity in the
increasingly competitive marketplace are the main driving forces in the provision of superior
quality services. According to Kotler and keller (2006) successful companies add benefits to
their offering that not only satisfy customers but surprise and delight them. Delighting customers
is a matter of exceeding expectations.
2.5.3 Customer satisfaction
Most researchers agree that satisfaction is an attitude or evaluation that is formed by the
customer comparing their pre-purchase expectations of what they would receive from the
product to their subjective perceptions of the performance they actually did receive (Sriyam,
2010). According to Hansemark and Albinson (2004) as cited in Zekiri (2011) “satisfaction is an
overall customer attitude towards a service provider, or an emotional reaction to the difference
between what customers anticipate and what they receive, regarding the fulfillment of some
21
needs, goals or desire”. Kotler and keller (2006) defines satisfaction as a person's feelings of
pleasure or disappointment resulting from comparing a product's or service’s perceived
performance (or outcome) in relation to his or her expectations. Customer satisfaction is also
defined as an "evaluation of the perceived discrepancy between prior expectations and the actual
performance of the product" (Samuel, 2006). These definitions of customer satisfaction have in
common that, if the performance falls short of expectations, the customer is dissatisfied. If the
performance matches the expectations, the customer is satisfied. If the performance exceeds
expectations, the customer is highly satisfied or delighted. In conclusion, customer satisfaction is
defined as a result of customer’s evaluation to the consumption experience with the services.
However, the customers have different levels of satisfaction as they have different attitudes and
perceived performance from the product/service.
2.6 Importance of quality of service:
Achieve returns of material: this is the provision of services characterized by high

quality than, their counterparts, or even their equality by reducing the errors in the work
to the greatest extent possible, leading to reduced costs of providing the service, on the
one hand, and retain customers and attract new customers, contributing to the growth of
financial returns achieved.
Maintaining customer loyalty towards the organization of the service provided: because
that would maintain the deal in the customer organization and attention to their wishes
and requirements will contribute to increased loyalty towards this Organization.
Maintain the staff: it is working within the organization are the clients internal, so it is
of interest to them through their development and training and acquire skills to help
them improve the quality of the service, and that this interest felt working interest
management them, which motivates them to provide their best and ensure that they
belong to the region.
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The quality of the service to show the honorable image of the organization provided for
the service because it is the means of promotional and advertising for the important
services they provide.
The quality of service management to stimulate interest in the development and improve
the technology used and keep pace with this development, to ensure a high level of
quality provided to customers.
Quality of the service is working to achieve the ultimate benefit of quality at the level of
society as a whole, on the grounds that social utility of the quality of service will be
reflected on the community.
Works to ensure quality of service and the continued survival of the organization. The
fact, that quality means continuous improvement, which gives the organization
continuity and stability in this market.
The researcher conclude that high levels of service quality will lead to customer satisfaction and
repeat purchase of the same restaurant, and to achieve customer satisfaction, of course, will lead
to increased productivity and profit.
2.7 Service quality in banking

Service quality is gaining more importance in the banking industry and the value of improving
service quality should be determined. Riadh, L., Ines, L., and Miguel, M., (2011) suggest that
developing strong relationships between customers and financial institutions serve as incentives
for customers to remain loyal and thus provide financial institutions with a source of differential
advantage. Similarly, Kazi Omar Siddiqi (2010) finds that a centrally important aspect of a
commercial customer’s dealing with a bank is the quality of the long-term relationship that
develops with the bank. LeBlanc, & Nguyen (1988) as cited in Kazi Omar Siddiqi (2010)
focused on service quality in financial institutions and discussed 6 factors that explain perceived
service quality, (a) degree of customer satisfaction, (b) contract personnel, (c) internal
23
organization, (d) physical environment and instruments, (e) corporate image, and (f) personnel-
customer interaction during the service encounter, contribute to service quality.
2.8 The relationship between service quality and customer satisfaction

Service quality is an important tool to measure customer satisfaction and there is a close
relationship between service quality and customer satisfaction (Kadir, Rahmani & Masinaei,
2011).
Although confusion still exists between the two concepts (service quality and satisfaction),
several authors have managed to highlight the distinction between them. Thus, ‘service quality is
the managerial delivery of services while satisfaction is customers’ experiences with those
services’ (Lenka, Suar et al., 2009, p. 50) and is considered a consequence of service quality
(Lassar, Manolis et al., 2000; Mohammed and Mohammad, 2003; Reimann, Ulrich et al., 2008).
Other authors consider that ‘service quality is a consumer’s judgment about the service itself,
while satisfaction is more a judgment of how the service emotionally affects the consumer’
(Schneider and White, 2004, p. 51).
This assertion has its grounds in the belief that customers need to experience a service in order to
decide whether satisfied or not, but can make quality judgments in the absence of an experience
with the service. In line with the above mentioned, Johnson and Gustafsson (2000, p. 63) point
out that service ‘attributes provide customers with benefits and the benefits derive overall
satisfaction’. This idea could be extended and say that the higher the benefits are perceived by
customers, the higher the satisfaction level. that ‘customers’ satisfaction is a combination of their
cognitive and affective response to service encounters’ (Lenka, Suar et al., 2009, p. 50) and
others refer to channel satisfaction which is defined as ‘the customer satisfaction with the
experience of dealing with any given channel individually’ (Madaleno, Wilson et al., 2007,
p. 917).
Thus, we may say that bank customer satisfaction is a positive emotional state that results due to
a positive interaction experience. Considering the interaction within bank units, we must add that
satisfaction is a result of positive interactions with bank personnel, with physical evidence and of
24
customers’ perceptions about the attributes referring to processes which provide customers with
the comfort and efficiency benefits.
On the other hand, machine service quality attributes (nonhuman delivery systems), may include
aspects referring to the quantity and quality of the information, to the ease of use, system security
etcetera. However, most financial services require considerable customer contact (Chebat and
Kollias, 2000) and as highlighted in previous studies, traditional services quality factors are very
important in banks’ attempt to satisfy their customers (Al-hawari, 2008).
Therefore, we consider that bank management should pay attention to the human component of
service quality. ‘Personnel-related characteristics are keys in helping to achieve customer
satisfaction’ (Neilson and Chadha, 2008, p. 208) as they reduce the number of barriers which
may affect customers’ trust in the financial institution. Bank personnel must demonstrate
professional knowledge in their interaction and communication skills. Unless customers
understand the terms used by bank employees, the information they receive is not considered
valuable and cannot be convinced to end the buying process.
Therefore, bank personnel must realize that ‘communication is thought to play an important role
in the service delivery process’ (Lassar, Manolis et al., 2000, p. 249) and try to use the
appropriate terms so as to inspire trust and confidence. Moreover, bank personnel must prove
interest and concern for customers’ needs and offer them support when they encounter different
problems. In their interaction with customers, employees must first listen to customers’ needs
and not to be aggressive sellers. Their major interest should be trust gaining and not an increase
in sells.
The importance of personnel and of customer trust in personnel and in the bank is given by
services characteristics. Financial services are intangible, and most important, they imply
customers’ financial resources. Besides, financial services are bought with a low frequency and
suppose a long term relationship between customers and their banks.
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The purpose of measuring customer satisfaction is to assess the quality of the existing
management practices and identify directions for improvement. The aim of managing
satisfaction is to obtain a higher rate of customer retention and improve a company’s market
share and profits (Gilbert and Horsnell, 1998).
Many researchers propose that customer satisfaction influences customer loyalty, which in turn
affects profitability (Anderson and Fornell, 1994; Gummesson, 1993; Heskett et al., 1994;
Reicheld and Sasser, 1990; Rust et al., 1995; Schneider and Bowen, 1995; Storbacka et al., 1994;
Zeithaml et al., 1990). Barsky (1992) discussed a theoretical model of customer satisfaction and
then tested the model using a survey instrument. Using his survey instrument, he was able to
support his hypothesis that intent to return is positively related to customer satisfaction (Su,
2004).
Chang and San’s (2005) study investigated the relationship between service quality, customer
satisfaction, and profitability in the Taiwanese banking industry. The conclusion of the study is
that the performance scale developed in the SERVPERE model and customer satisfaction in the
profitability model are confirmed in the Taiwanese banking industry.
The study revealed that service quality is an antecedent of customer satisfaction and customer
satisfaction is an antecedent of profitability. Moreover, Zeithaml (2000) also found evidence
about the influences of service quality on profits and Heskett et al. (1997) argued that a “direct
and strong” relationship exists among service quality, customer satisfaction and profitability.
Vimi and Mohd (2008) undertook a study of the determinants of performance in the Indian retail
banking industry based on perception of customer satisfaction. The finding of the study
reinforces that customer satisfaction is linked with performance of the banks.
2.9Measuring Service Quality via Customer Satisfaction

Customer satisfaction is the leading criterion for determining the quality is actual delivered to
customers through the product or service and by the accompanying servicing (Vavra, 1997:4).
Several studies have found that it costs about five times as much in time, money and resources,
to attract a new customer as it do to retain an existing customer (Naumann, 1995:1). This creates
26
the challenge of maintaining high levels of service, awareness of customer expectations and
improvement in services and product.
Knowledge of customer expectations and requirements, is essential for two reasons, namely it
provides understanding of how the customer defines quality of service and product, and
facilitates the development of a customer satisfaction questionnaires (Hayes, 1997:7).
Furthermore, customer satisfaction is recognized as of a great importance to all -commercial
firms because of its own influence on repeat purchases and word-of mouth recommendations
(Berkman & Gilson, 1986:56).
27
Chapter three
Research Design and Methodology
This chapter will explain the methodological approach adopted when conducting the research.
The research design, sampling techniques, tools of data collection, procedure of data collection
and methods of data analysis will be briefly explained.
3.1 Research Design

Research can be classified as descriptive, explanatory and exploratory depending on the specific
purpose that the research tries to address. Descriptive research sets out to describe and to
interpret what is. It looks at individuals, groups, institutions, methods and materials in order to
describe, compare, contrast, classify, analyze and interpret the entities and the events that
constitute the various fields of inquiry. It aims to describe the state of affairs as it exists. On the
other hand, explanatory research, aims at establishing the cause and effect relationship between
variables.
The researcher uses the facts or information already available to analyze and make a critical
evaluation of the data/information. Exploratory research is less formal, sometimes even
unstructured and focuses on gaining background information and helps to better understand and
clarify a problem. It can be used to develop hypotheses and to develop questions to be answered
(Abiy et al., 2009).
Accordingly, the researcher was employ descriptive and explanatory research design with which
to describe and explained the five service quality dimensions and the relationship between
service quality and overall customer satisfaction. Moreover, the contribution of the five service
quality dimensions towards the dependent variables was clearly examined.
3.2 Sample and target population
On January 30, 2014, the total number of customers of Wegagen bank from the 90 branches of
the country and 43 branches in Addis Ababa is 375,623 and 166,485 respectively. The method
28
that will be employed to obtain information about service quality and customer satisfaction in
Wegagen bank is through survey conducted on a sample of customers from five branches (Bole,
Meskel square,Gofa, Gergi, Beklobet ).These 43 branches were selected in A.A based on the
high number of customers. The population taken for sampling was limited to the geographical
location of Addis Ababa due to time limitation and resource constraints.
According to Dillman (2000), and Hill et al. (2003), a sample size of 100 and above is sufficient
to present good concise research findings and provide good representation of the population or
organization or any subject investigated. Samples of 250 respondents were selected from those
bank customers; 50(20%) from each branch through non-probability sampling.
3.3 Sampling Techniques

The researcher used non-probability sampling especially convenience sampling. The reason for
using sample is the effort, cost incurred and the time that will be spent for the accomplishment of
the study will be reduced. It is also difficult to access each population unit and difficult to get
their address hence the study did not use probability sampling technique. In addition,
convenience-sampling technique was used because in this case the respondents are accessible to
the researcher.
3.4 Source of Data
There are two types of sources when collecting data; primary and secondary data sources
(Arbnor and Bjerke, 1994) as cited in Olle Stromgren, 2007. Primary sources are directly related
to the study purpose. Primary data consists of all the data collected throughout the study that
directly can be related to the study purpose, both personally gathered as well as data from a third
party that has been collected with equivalent purpose. Secondary data on the other hand, contains
relevant data that has been collected for a different purpose, but from which the conclusion is
valuable for the purpose.
Throughout the study, the researcher used both primary and secondary data sources. Primary
data, directly related to the purpose, were collected through an empirical study. The empirical
study was made through distributing questionnaire regarding service quality. Secondary data,
29
indirectly relating to the purpose, was collected through a theoretical study comprised of; books,
research thesis, articles, internet, manuals and annual reports.
3.5 Instruments of Data Collection
There is a tendency to divide research into qualitative and quantitative when approach to
research has been considered as the criterion of classification. Qualitative research involves
studies that do not attempt to quantify their results through statistical summary or analysis.
Qualitative research seeks to describe various aspects about behavior and other factors studied in
the social sciences and humanities. In qualitative research data are often in the form of
descriptions, not numbers. Quantitative research is the systematic and scientific investigation of
quantitative properties and phenomena and their relationships. The objective of quantitative
research is to develop and employ mathematical models, theories and hypotheses pertaining to
natural phenomena. The process of measurement is central to quantitative research because it
provides the fundamental connection between empirical observation and mathematical
expression of an attribute (Abiy et al., 2009).
This research was done using both quantitative and qualitative data; the researcher is going to
collect quantitative data through close-ended questionnaire by the SERVPERF dimension model.
In addition, qualitative data was collected through interview with Marketing Manger of the
organization. The researcher used Likert scale that helps to measure a variable provided and
adopted by the researcher and help the respondents to evaluate service quality of a given
organization and rate their satisfaction level of the service based on their last service encounter
experience. This measurement shows statement with which the respondents show the level of
agreement or disagreement that is strongly agree= 5, “agree=4”, “neutral=3”, “disagree=2”,
strongly disagree=1 points and also the researcher used nominal and ordinal scale according to
their importance in the data collection and changed to scale measurement in the data entry to
SPSS. The questionnaire was distributed to all sample respondents and interview conducted with
the marketing manager of the bank to collect information about their service quality and
customer satisfaction.
30
3.6 Procedure of Data Collection
The research was conducted by one person and it is done for the fulfillment of academic
requirement. The researcher by herself collected the data in different service encounters of the
bank from the sample respondents.
3.7 Methods of Data Analysis

The data collected through the questionnaires was analyzed using the Statistical Package for
Social Sciences (SPSS) version 20.0, Microsoft office Excel 2007 as well as descriptive statistics
in the form of tabulation, percentage and mean to summarize the result. Pearson Correlation
coefficient particularly Bivariate correlations was used to examine the relationship between
SERVPERF dimensions and customer satisfactions in the service delivery of Wegagen bank.
Moreover, multiple regressions is used to identify the most important factors of SERVPERF
dimensions that influence customer satisfaction and the implementation of multiple regressions
is to learn more about the impact of SERVPERF dimensions and the relationship between
several independent or predictor variables and a dependent or criterion variable.
3.8 Reliability and Validity of the Research

Reliability is the consistency of a set of measurements or measuring instrument, often used to
describe a test. Reliability is inversely related to a random error (Coakes & Steed, 2007). There
are several different reliability coefficients. One of the most commonly used is called Cronbach’s
Alpha. Cronbach’s Alpha is based on the average correlation of items within a test if the items
are standardized. Cronbach’s alpha reliability analysis was conducted on the independent
variables in order to determine the reliability of the instrument used. Lack of reliability is a
serious drawback of an outcome measure as it indicates errors in measurements (Powell, 1999).
Validity is concerned with whether the findings are really about what they appear to be about
(Sounders et. al., 2003). Validity defined as the extent to which data collection method or
methods accurately measure what they were intended to measure (Sounders et. al., 2003).
Numbers of different steps were taken to ensure the validity of the study:
31
• Data was collected from the reliable sources, from respondent who have experiences in
using the service of the bank.
• Survey question were made based on literature review and frame of reference to ensure
result validity.
3.9 Research Ethics

In the context of research, according to Saunders, Lewis and Thornhill, (2001:130), “… ethics
refers to the appropriateness of your behavior in relation to the rights of those who become the
subject of your work, or are affected by it”.
The data was collected from those of willingness sample respondents without any unethical
behavior or forcefully action. The results or a report of the study is used for academic purpose
only and response of the participants is confidential and analyzed in aggregate without any
change by the researcher. In addition, the researcher respects the work of previous investigations
or study and cited appropriately those works that has been taken as a basis.
32
Chapter four
Presentation of Findings and Data Analysis
This chapter presents analysis, interpretation and findings of information collected through self
administered questionnaires with 250 randomly selected customers of Wegagen Bank. The
analysis is based on the information obtained from 250 customers and incorporated information
obtained through an interview with the two branch managers. In order to get a representative data
250 questionnaires were prepared and distributed to customers of the bank. Out of these 250
questionnaires distributed to customers, 236 questionnaires were collected back. From these only
228 were properly filled. Thus, the analysis is based on the valid 228 questionnaires (with 91.2%
response rate) response while the remaining 22 (8.8%) questionnaires were not included due to
incompleteness of the questionnaires.
Table 4.1 Response rate of Questionnaires Administered

Correctly filled and Not correctly filled not returned
Returned
No 228 8 14
Percent 91.2 3.2 5.6
Source: survey result (2014)
4.1 Personal Profile of the Respondents

The first part of the questionnaire consists of the demographic information of the participants.
This part of the questionnaire requested a limited amount of information related to personal and
demographic characteristics of respondents. Accordingly, the following variables about the
respondents were summarized and described in the subsequent table. These variables includes:
sex, age and educational status.
33
Table 4:2 Characteristics of respondents by Sex and Age
ITEM Frequency Percent
Sex Male 153 67.1
Female 75 32.9
Total 228 100.0
18-24 45 19.7
Age 25-34 89 39.0
35-44 60 26.3
45-54 26 11.4
55-64 6 2.6
>64 2 0.9
Out of the total 228 of respondents 67.1% are male and 32.9% of them are female. Regarding the
age of the participants, the largest group (39.0%) is in the 25-34 years age group, the second
largest group (26.3%) indicated in the 35-44 years age group, those in the age category of 18-24
are 19.7% of the respondents , in the age category of 45-54 represent 11.4% , 55-64 represent
21.05%, and 2.6% represent in the age category 55-64, 0.9% of the remaining respondents are
above 64.
According to table 4.3 presented below the first item shows educational status of the
respondents. From the total 3.9% of the respondents are categorized under primary education,
12.3% of them were high school complete, 36% diploma holders, 39.9% degree holders, 6.6%
master holder and the remaining 1.3% are PhD and above. In general, the table shows the
majority of the respondents are degree holders with 39.9% from the total.
34
Table: 4.3 Educational levels of respondents
Level of Frequency Percentage
education
Primary 9 3.9
High school 28 12.3
Diploma 82 36.0
Degree 91 39.9
Master 15 6.6
PhD and 3 1.3

above
TOTAL 228 100
4.2 Reliability Test

Reliability analysis was computed to test whether the scale used in the study is internally
consistent and consistently measures the criterion variable using the reliability procedure in
SPSS (version 20.0). From data analysis the Cronbach’s Alpha for this study is good according
to the standard set by George and Mallery (2003) and it is over the acceptable limit of >0.70. For
all individual dimensions, Cronbach’s alpha is greater than 0.70, which is shown below, that
signifies greater internal consistency between the items and measures the intended dimension of
the variables.
35
Table: 4.4 Cronbach’s alpha test for independent variables
Dimension Cronbach’s Alpha N of items
Tangibility 0.721 4
Reliability 0.716 5
Responsiveness 0.781 4
Assurance 0.764 4
Empathy 0.744 4
0.886 21
Over all scale reliability
4.3 Descriptive Statistics

The analysis of this study was done using descriptive statistic or through using central tendency,
from these the researcher used the mean scores of each variable. The main reason of using this
measurement was to demonstrate the average responses of respondents for each question that
was included under each dimensions of the predictor variable and to reach the grand mean of
each dimension.
Finally, the interpretation is made through using the grand mean of each independent dimension
for the aim of achieving partial research objectives of the study. The interpretation was made
based on the following measurement scale intervals or range. Mean scores 4.51-5.00 excellent or
very good, 3.51-4.50 good, 2.51-3.50 average or moderate, 1.51-2.50 fair and 1.00-1.50 is poor
(Poonlar Btawee:1987)
36
4.3.1 Service Quality Assessment
In order to assess the customer-perceived quality of Wegagen bank, descriptive statistics were
computed per dimension, as given below.
Table: 4.5 Tangibility Dimension
Items Mean Std. Grand Mean

Deviation
The organization facilities are up to date 3.84 0.955 3.90
3.54 1.112
Wegagen bank’s physical facilities are
visually appealing
4.17 0.732
The staff dress properly
4.07 0.782
The organization has suggestion box to
collect customer comment and
complaints
Tangibility refers to the appearance of physical facilities, equipment, personnel and

communication materials. According to table 4.5, the descriptive statistic analysis shows that the
range 3.51-4.50 indicates that customers perceived that the tangibility of the organization is
good. Based on the data analysis the mean score of tangibility with the value of 3.90 imply that
customer’s attitude towards the organization tangible aspect is good.
37
The higher contribution to the outcome is achieved from the third item that means the staff dress
properly followed by the organization has suggestion box to collect customer comment and
complaints with the mean value of 4.17 and 4.07 respectively. However lower contribution is by
the second predictor that means Wegagen bank’s physical facilities are visually appealing
followed by the organization facilities are up to date with the mean value of 3.54 and 3.84
respectively. The mean score of the construct shows that the customers’ perception of the
Wegagen Bank service quality is good.
Table: 4.6 Service Reliability

Deviation
The staff can provide you the services as 3.69 0.991 4.02
promised
When you have a problem, Wegagen 3.80 0.985

bank shows a sincere interest in solving
it
Wegagen bank performs the service right 4.04 0.801
the first time
Wegagen bank provides its services at 4.11 0.861

the time it promises to do so
Wegagen bank insists on error-free 4.32 0.779

records
Reliability refers to the ability to perform the promised service dependably and accurately. It is
regarded as the most important determinant of perceptions of service quality. According to the
above table, reliability with 4.02 values from the descriptive statistics indicate that customers
38
perceive that quality of service being offered by the organization is good, according to (Poonlar
Btawee: 1987) the mean score of 3.51-4.50 is under good service quality range.
From the variables the higher contribution to the mean has come from the fifth item that means
Wegagen bank insists on error-free records followed by proper delivery without mistake and
performing the service right the first time with the mean value of 4.32and 4.11respectively. In
addition the standard deviation shown indicates how closer or far each observation is from the
average. In general reliability takes a dominant position compared with the other independent
variables at Wegagen bank in the measuring the quality of service delivery.
Table: 4.7 Responsiveness Dimension

Deviation
The staff tells you exactly when services 4.15 0.828 4.23
will be provided
Employees of Wegagen bank give you

prompt service
4.28 0.670
The employees are easily accessible

when needed
4.32 0.708
Employees have willingness to help

customers and the readiness to respond
4.18 0.808
to customers request
The responsiveness dimension involves provision of prompt services and willingness to help
customers. The above table shows interrelated items that measure responsiveness.
Responsiveness with 4.23 values from the descriptive statistics analysis according to (Poonlar
39
Btawee: 1987) indicate that customers perceive that quality of service being offered by the
organization is good hence the mean score that has the value from 3.51-4.50 shows good level of
quality service delivery.
The higher contribution of the mean has come from the third variable that means the employees
are easily accessible when needed and employees of Wegagen bank give prompt service with the
mean value of 4.32 and 4.28 respectively. From this inference, we can conclude that customers
have good perception towards the responsiveness of the aspects of the organization.
Table: 4.8 Service Assurance

Deviation
There are adequate and necessary 4.30 0.739 4.21

personnel for good customer Services
The behavior of employees of Wegagen 4.32 0.768

bank instills confidence in customers
You feel safe in your transactions with 4.12 0.830

Wegagen bank
Employees of Wegagen bank have the 4.10 0.862

knowledge to answer your questions
The assurance dimension refers to the knowledge of employees and their ability to inspire trust,
confidence and security. Based on data analysis the above table shows us the mean scores of
customers perceived assurance quality of Wegagen Bank range from 3.51-4.50 indicate that
customers’ perceived that the assurance aspects of the organization is good. The mean score of
assurance is 4.21, which suggests that the customers find the services assurance of the bank is
good.
40
The higher contribution of the item to the construct is the second variable that means the
behavior of employees of Wegagen bank instills confidence in customers with the mean value of
4.32 followed by there are adequate and necessary personnel for good customer services with the
mean value of 4.30. Finally, this shows that the value of assurance is a good indicator of the
organization service quality.
Table: 4.9 Service Empathy

Deviation
3.74 1.066 3.81

Wegagen bank gives you individual
attention
Wegagen bank has operating hours 3.81 0.977
convenient to all its customers
3.77 0.959
The service providing office is
conveniently located to Customers
Employees of Wegagen bank understand 3.94 0.916
your specific needs
The empathy dimension represents the provision of individualized attention to customers and
ease of contact, effective communication, and understanding the customers. Based on the data
analysis the above table 4.9 show predictors of empathy and show the customers’ judgment level
of empathy. The range 3.51-4.50 indicates that customers’ perceived that the empathy aspect of
the organization is good.
41
The mean score of empathy is 3.81, which shows the customers believed that the Empathy of the
organization is good according to the customers’ point of view. The highest contributor for this
dimension has come from the forth indicator that means employees of Wegagen bank understand
customers’ specific needs followed by Wegagen bank having operating hours convenient to all
its customers with the mean value of 3.94 and 3.81 respectively. However, the least contribution
is Wegagen bank gives its customers individual attention and the service providing office is
conveniently located to customers. As a conclusion, the mean score of this construct based on
customers view shows that Wegagen Bank has good service quality delivery.
Generally, according to the descriptive statistics methods of data analysis different dimensions of
SERVPERF have different perceived quality level by the customer at Wegagen bank.
Responsiveness was the most important element in how a customer perceived a service quality in
relation to other SERVPERF dimensions followed by perceived assurance quality, reliability
quality, tangibility and empathy respectively. There is good service quality among the
SERFPERF dimension as perceived by Wegagen Bank customers.
4.3.2 Customer Satisfaction

Many researchers conceptualize customer satisfaction as an individual’s feeling of pleasure (or
disappointment) resulting from comparing the perceived performance or outcome in relation to
the expectation (Oliver, 1981; Brandy and Robertson, 2001; Lovelock, Patterson and Walker,
2001).
However, the customers have different levels of satisfaction as they have different attitudes and
perceived performance from the product/service. Based on this idea; the researcher tried to
measure the level of customer satisfaction and the descriptive statistics analysis of customer
satisfaction shows that the level of customer satisfaction is 4.23, which implies customer of the
organization were satisfied and above average by the organization service delivery. Moreover,
the percentage for each category is presented below in the table 4.11 and this finding shows
87.7% of the customers are satisfied with the service delivery of the organization, 4.4% of
customers were neutral and the remaining7.9% of customers were dissatisfied.
42
Table 4.10: customer satisfaction based on amount of measurement scale
Frequency Percent
Strongly disagree 1 0.4
Disagree 17 7.5
Neutral 10 4.4
Agree 163 71.5
Strongly agree 37 16.2
Total 228 100
4.4 Correlation and Regression Analysis

Correlation analysis was conducted to investigate the relationship between SERFPERF
dimensions, which are tangibles, reliability, responsiveness, assurance and empathy with
customer satisfaction. A correlation analysis with Pearson´s correlation coefficient (r) was
conducted on all variables in the study to explore the relationships between customers perceived
service quality dimensions and customer satisfaction. In addition, multiple regressions were used
to identify the most important dimensions of SERVPERF dimensions that contribute to customer
satisfaction. To interpret the strengths of relationships between variables, the guidelines
suggested by Field (2005) were followed, mainly for their simplicity. His classification of the
correlation coefficient (r) is as follows: 0.1
– 0.29 is weak; 0.3 – 0.49 is moderate; and > 0.5 is strong.
43
Table 4.11: Pearson’s Correlation Matrix for predictors and customer satisfaction
Tangibles Reliability Responsiveness Assurance Empathy overall

satisfaction
Tangibles 1
Reliability .410** 1
Responsiveness .432** .505** 1
Assurance .426** .426** .655* 1
Empathy .404** .396** .488** .545** 1
overall .506** .509** .613** .635** .663** 1

satisfaction
**. Correlation is significant at the 0.01 level (1-tailed).
The correlations of the variables are shown in Table 4.11, however, each variable correlates
perfectly with itself, as evidenced by the coefficients of +1.00 at the intersection of a particular
variables’ row and column.
According to table 4.11, Pearson correlation matrix shows tangibles have strong associations
with overall customer satisfaction with a value of 0.506. As per the person’s correlation, the r
value range from >0.5 shows variables is strongly correlated. As a result, reliability has strong
relation with a value of 0.509. Based on the above table correlation analysis, responsiveness with
r-value has strong associations with overall customer satisfaction with a value of 0.613.
According to Field (2005), Pearson correlation coefficient value between >0.5 shows that
variables are strongly correlated.
44
According to table 4.11, Pearson correlation matrix shows assurance has strong association with
overall customer satisfaction with r-value of 0.635. Therefore, assurance has positive relationship
with customer satisfaction. In the same way empathy has positive associations with overall
customer satisfaction with r-value of 0.663.
Generally, empathy and assurance have highest positive associations with overall customer
satisfaction towards Wegagen bank.
4.5 Regression Analysis

Regressions fit a predictive model to data and use that model to predict the values of dependent
variable from one or more independent variables (Andy, 2005). Linear regression estimates the
coefficients of the linear equation, involving one or more independent variables that best predict
the value of the dependent variable. In this research, the regression uses SERVPERF dimensions
as independent variables against a separate measure of overall customer satisfaction.
A regression analysis examines the relation of the dependent variable to specified independent
variables. Multiple linear regressions were conducted to identify the relationship and to
determine the most dominant variables that influenced the customer satisfactions of Wegagen
bank. The significance level of 0.05 was used with 95% confidence interval. The dependent
variable was customer satisfaction and the independent variables include the SERVPERF
dimensions, which are tangibility, reliability, responsiveness, assurance and empathy. The reason
for using this multiple regression analysis was to examine the direct effect of these SERVPERF
dimension on customer satisfaction towards Wegagen bank and the output was shown in the
table below. In order to show the impact that each dimension has on the dependent variable, the
study checked the Standardized Coefficients. The table shows the slope of multiple regression
analysis.
Table 4.12 Model Summary
Model R R Square Adjusted R Std. Error of the
Square Estimate
a
1 .784 .615 .606 .46316
a. Predictors: (Constant), Empathy, Reliability, Tangibles, Assurance,
Responsiveness
45
We observed in the model summary from the analysis in the above table R (0.784a) indicates
correlation of the five independent variables with the dependent variable customer satisfaction
and the weighted combination of the predictor variables ( SERVPERF dimensions) explained or
affect approximately 62%(R square) of the variance of customer satisfaction and the remaining
38% is by extraneous variables. This result also indicates that there may be other variables that
could have been neglected by the current study in predicting satisfaction.
Table 4.13: ANOVA (Independent Variables as Predictors to Customer satisfaction)
a
ANOVA
Model Sum of Squares Df Mean Square F Sig.

b
Regression 75.939 5 15.188 70.800 .000
1 Residual 47.623 222 .215
Total 123.561 227

a. Dependent Variable: overall satisfaction
b. Predictors: (Constant), Empathy, Reliability, Tangibles, Assurance, Responsiveness
Table 4.13, the ANOVA test, it is noticed that F value of 70.800is significant at the 0.000 level or
significant at 1%. Therefore, from the result, it can be concluded that with 62 % of the variance
(R-Square) in customer satisfaction is significant and the model is appropriately measure the
latent construct.
Table 4.14: Estimated Unstandardized and Standardized Regression Coefficient
Model Unstandardized Coefficients Standardized t Sig.

Coefficients
B Std. Error Beta

(Constant) -.767 .264 -2.904 .004
Tangibles .174 .060 .144 2.925 .004
Reliability .139 .053 .132 2.622 .009
1
Responsiveness .219 .075 .174 2.925 .004
Assurance .260 .073 .212 3.575 .000
Empathy .385 .057 .352 6.750 .000
46
Based on multiple linear regression analysis, the above table 4.14 reveals the impact of each
SERVPERF dimensions and their significance. The impact of empathy, assurance,
responsiveness, tangibles and reliability on customers’ satisfaction with Wegagen bank are
0.352, 0.212, 0.174, 0.144 and 0.132 respectively, in their descending order. By examining this
beta weight of data analysis result the finding shown that empathy followed by assurance and
responsiveness was making relatively larger contribution to the prediction model.
This informed us the predicted change in the dependent variable for every unit increase in that
predictor. This signifies that for every additional point or value in the empathy one could predict
a gain of 0.352 points on the customer satisfaction provided that other variables being held
constant the same are for assurance, responsiveness, tangibles and reliability. Generally,
customer satisfaction is primarily predicted by higher level of empathy, assurance, and
responsiveness and to a lesser extent by tangibles and reliability in Wegagen bank. Empathy
received the strongest weight in the model followed by assurance and responsiveness this shows
they are the dominant dimensions in Wegagen bank.
4.6 Interview with manager
The researcher has conducted an interview with the marketing manager of the bank in line with
the following questions. The information collected from this manager is analyzed qualitatively as
follows.
A) Did your bank conduct market research or customers’ need assessment for
providing better service? If yes, what improvements have been made?
According to the response of the manager banks are service delivery institutions, they deliver
their services for customers. A number of customer surveys (both large small scale survey) were
conducted, mostly they were conducted randomly on need basis. The organization provides
different new service and Improvement was made in different aspects based on the feedback of
customers on those customer need assessments, such as the organization provided training
program for employees, improving the banking technology and using computerized system. The
bank tried to improve its service provision to the expectation of customers.
47
B) Do you think service quality and customer satisfaction as an important strategy for
your bank? Explain?
According to the manager, providing excellent service quality and high customer satisfaction is
the important issue and challenge facing the contemporary service industry. High customer
satisfaction and loyalty have long been key concerns for operational management in service
industries. Consequently, customer orientation, namely, understanding customer requirements
and expectations, is the first step service providers must take to enhance service quality.
Customers are the backbone of service providing institutions like banks. Because of these and
other factors banks cannot exist without customers. Providing service to customers is not only
the strategy banks follow, they must retain existing customers, attracting new customers and
satisfying their needs. This takes place by applying the concept of service quality and customer
satisfaction as a strategy in the bank.
Therefore, service quality and customer satisfaction are important strategies for Wegagen bank.
The reason is that according to the manager if the bank does not increase and improve its service
quality and meet customers’ needs, customers will be dissatisfied and they will switch from the
bank to other banks. So without customers there is no bank business in general.
C) What are the strategies applied by the bank to boost the quality service delivery of
the bank?
Service providing institutions are applying different strategies in order to enhance their customer
service quality delivery. Therefore, the manager was asked what strategies the bank applies in
providing service quality or enhances customer service quality delivery. According to the
manager the bank uses different strategies to boost the quality of its service delivery in the bank
is to shorten the service delivery process. For this, the bank has been pioneer in implementing a
banking technology in the country. And currently, the bank has finalized the upgrading of this
technology in to a more versatile technology. And also the bank gives different training
programs for its employees on the areas of customer service delivery process, how to handle
48
their problem during service encounter and also train them on product knowledge of the bank to
increase the ability and knowledge of employees.
D) What are the measures that your bank is taking to improve customer satisfaction?
According to the response of the manager, the measures taken to improve customer satisfaction
is by providing continuous training to employees, designing a system of handling customer
complaint. Front line employees ask customers whether they are satisfied or dissatisfied during
service encounter producing new products to improve customer satisfaction.
E) Employees’ attitude /behavior play a central role with regard to customer’s

satisfaction and quality service delivery. What strategies are followed in the bank to
improve the attitude of the employees in relation to customer service?
There is concrete evidence that satisfied employees make for satisfied customers and satisfied
customers can, in-turn, reinforce employees’ sense of satisfaction in their jobs. Some have even
gone so far as to suggest that unless service employees are happy in their jobs, customer
satisfaction will be difficult to achieve (Zeithaml and Bitner, 2003).
According to the response of the manager the bank does the following:
• Organization’s vision, mission, strategies, policies, duties and responsibilities of
employees are made clear to all.
• The performance rating of employees is also aligned to customer satisfaction
• Good performance rating will allow an employee to get a higher bonus than others.
49
Chapter five
Conclusion and Recommendation
This chapter will present the study’s conclusion from the research and the research questions will
be answered. The chapter ends with recommendations and implication for managers.
5.1 Conclusion
Customer satisfaction (CS) has become an important issue for commercial and public service
organizations. Establishing and achieving customer satisfaction is a main goal of business
nowadays, because there is very clear and strong relationship between the quality of product,
customer satisfaction and profitability (Ingrid Fecikova, 2004).
The major objective of this study was to assess service quality and its impact on customer
satisfaction. In order to accomplish this objective the researcher distributed 250 questionnaires to
sample respondents in the specified service encounter and collected 228 completely filled
questionnaires for data analysis. In addition, the researcher attempted to identify which of the
SERVPERF dimension(s) achieved higher perceived performance in the side of customers and
identified which dimensions have higher and lower impact on customer satisfaction at Wegagen
bank. Moreover, the study identified which areas require improvement and additional
investment.
The findings indicate that customers’ perceptions vary according to the nature of service. The
computed mean scores of SERVPERF dimensions help to measure the perceived service quality
of the organization and the result shows that the service quality of the organization is closer to
good. The higher confirmed dimension by the customers is responsiveness followed by assurance
and reliability. However, lower perceived quality dimensions by the customer are empathy and
tangibles. As a general, the result of the study shows that the customers have good attitudes
towards the service quality of the organization.
50
The computed values of the criterion variable shows that the level of customer satisfaction is
good based on the research finding, this shows that most of the customers are satisfied and there
are customers that are dissatisfied with some aspects of the organization’s services.
The Pearson’s correlation coefficient of the study signifies that all predictor variables and
criterion variable have positive relationship with each other. Based on the study result empathy,
assurance, responsiveness, tangibility and reliability have strong association with customer and
their level of significance is varying among dimensions in the sector.
The relative importance of the significant predictors is determined by looking at the standardized
coefficients in the multiple regression result table. Based on this way the result of regression
analysis showed that empathy has highest impact on customer satisfaction by holding other
dimensions as constant followed by assurance, responsiveness, tangibility and reliability.
However, the least impact on customer satisfaction was observed in the aspect of reliability. This
result shows that empathy and assurance have dominant influence on the customer satisfaction
and reliability has least influence towards Wegagen bank. Therefore, the researcher confirmed
that the dimensions of service quality vary in driving customer satisfaction in a given service
sector.
The finding indicate that above the average the customer satisfaction is influenced or explained
by SERVPERF dimensions, which means by tangibility, reliability, responsiveness, assurance
and empathy together. However, the result showed customer satisfaction is influenced by other
extraneous variables that are not included in this study. Therefore, in measuring customer
satisfaction the organization should take a care by including all the factors that can affect
customer satisfaction.
51
5.2 Recommendations
Based on the results of the analysis and conclusion made the following recommendations are
forwarded which help Wegagen bank in assessing its service delivery process or in order to
improve the service delivery of the organization and indirectly to boost customer satisfaction.
The organization should invest to the entire service quality dimension in maintaining and
improving the service quality the bank provides.
The study confirms the five dimensions of service quality (Tangibility,
Reliability, Responsiveness, Assurance and Empathy.) are positively correlated
with the bank customer satisfaction.
As clearly shown in the analysis part of the study responsiveness, assurance and
reliability have the most dominant influence in bringing customer satisfaction and
empathy and tangibility are least in the influence. Therefore, the organization should
invest more on the dominant dimensions and it should consider the appropriateness of
service empathy and tangibility.
The organization should invest more on SERVPERF dimensions because all the
dimension are good , to achieve this higher perceived performance and get competitive
advantage in the market the organization requires to invest and improve in those weak
areas.
The organization should put all the effort to satisfy their customers up to what is possible.
As shown in the finding and presentation part of the study some of the customers
are dissatisfied on their organization overall service quality and some are neutral.
Develop appropriate programs and provide on-going training on the various attributes of
responsiveness to strengthen employees’ ability to improve customer service.
Moreover, the bank should evaluate employees’ performance constantly. Employees

should participate in scheduled training courses because behavior of employees is often
52
instrumental in bringing about desired outcome. Learning involves both the development
and modification of thoughts and behaviors, therefore the bank should continuously
redefine goals and policies, modify structures, re-engineer jobs, and track training,
monitoring, and rewarding of employees.
In the present competitive banking environment, most of the banks offer the same or
similar products around the world and service quality is a vital means to differentiate
themselves in the market place. The present study will provide at least some sorts of
guidelines to the policy makers of the bank, to take right decision to improve the quality
of services of the bank.
Increase communications amongst staff members using update data base system and
create a sense of teamwork. This enables the bank to deliver service with care and
attentiveness by improving employee motivation and capabilities.
53
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57
Appendix
58
Appendix A: English Version Questionnaire
QUESTIONNAIRE
Addis Ababa University
School of Commerce
MA Program in Marketing Management
Dear Respondents,
My name is Elsa Habte. I am postgraduate student at Addis Ababa University School of

Commerce. I am conducting a research study on “Assess service quality and its effect on
customer satisfaction in case of wegagen bank’’ In partial fulfillment of Master of Arts Degree
in Marketing Management at Addis Ababa University school of commerce (AAUSC) . I request
your help to spend some minutes of your time by filing the provided questionnaire. The aim of
this survey is to examine the service quality level and associated customer satisfaction with
Wegagen bank. . The data will be used only for academic purpose. Also, I ensure you that the
information provided will be kept confidential and will not be used for any other purpose. I thank
you in advance for active participation and kind cooperation.
Note: Participation is purely voluntary and no need to write your name anywhere.
59
PART I. GENERAL INFORMATION
Please put a tick (√) mark corresponding to your response
1. Gender:
Male Female
2. Age group:
A. 18-24 D. 45-54
B. 25-34 E. 55-64
C. 35-44 F. 65 and above
3. Level of education
Primary Degree
High school Master
Diploma PhD and above
Part II Basic information related to service quality
Please indicate the extent to which you agree or disagree with each of the following statements
by putting “X” in the appropriate place to choose the number from 1-5 that best represents your
level of agreement with the statement.
Measurement scales
No Measurement items Strongly Disagree Neutral Agree Strongly

disagree (1) agree (5)
(2) (3) (4)
1 The organization facilities are up to date
60
2 Wegagen bank’s physical facilities are visually
appealing
3 The staff dress properly
4 The organization has suggestion box to collect

customer comment and complaints
5 The staff can provide you the services as

promised
6 When you have a problem, Wegagen bank

shows a sincere interest in solving it
7 Wegagen bank performs the service right the

first time
8 Wegagen bank provides its services at the time

it promises to do so
9 Wegagen bank insists on error-free records
10 The staff tells you exactly when services will be

provided
11 Employees of Wegagen bank give you prompt

service
12 The employees are easily accessible when

needed
13 Employees have willingness to help customers

and the readiness to respond to customers
61
request
14 There are adequate and necessary personnel for

good customer Services
15 The behavior of employees of Wegagen bank

instills confidence in customers
16 You feel safe in your transactions with

Wegagen bank
17 Employees of Wegagen bank have the

knowledge to answer your questions
18 Wegagen bank gives you individual attention
19 Wegagen bank has operating hours convenient

to all its customers
20 The service providing office is conveniently

located to Customers
21 Employees of Wegagen bank understand your

specific needs
22 The organization contacts complaining

customers as quickly as possible
23 The organization provide compensation for

inaccurate Services
24 The employees quickly apologize to customers

when service mistakes are made
25 Accept responsibility for the customer

disappointment and do not blame customer
62
26 Overall, I am satisfied with the services
provided by Wegagen bank
63
Appendix B: Amharic Version Questionnaire
አዲስ አበባ ዩኒቨርስቲ
ንግድ ስራ ትምህርት ቤት
መጠይቅ
ውድ የተከበራችሁ አገልግሎት ተጠቃሚዎች:
ይህ መጠይቅ የተዘጋጀው ለገበያ አመራር ድህረ ምረቃ ትምህርት (Master of Arts in Marketing) ከፊል ማሟያነት
ለወጋገን ባንክ ተጠቃሚዎች ሲሆን አላማውም የአገልግሎቱን ጥራት በደንበኞች እርካታ ላይ ያለውን አስተዋፅኦ ወይም
ተፅዕኖ ለማወቅ ነው፡፡
የተከበራችሁ ደንበኞች በእርስዎ አመለካከት የባንኩን የአገልገሎት ጥራትና ተዛማጅ ነገሮች ላይ ያለዎትን አስተያየት
በመስጠት ለጥናቱ ስኬታማነት የበኩሉዎን ትብብር ያድርጉ ዘንድ በአክብሮት እጠይቃለሁ፡ ከዚህ መጠይቅ የሚገኘው
መረጃ በሚስጥራዊነት የሚያዝ ሲሆን አገልገሎቱም ለትምህርታዊ አላማ ብቻ ነው፡፡ ለሚያደርጉልኝ ትብብር በቅድሚያ
አመሰግናለሁ፡፡
እባክዎን ለጥያቂዎቹ በመልስነት ከቀረቡት አማራጮች ውስጥ ምልክት(/) በማድረግ ምላሽዎን ይስጡ፡፡
ክፍል 1
1. ፆታ
ወንድ ሴት
2. እድሜ
18-24 45-54
25-34 55-64
35-44 65 እና ከዛ በላይ
3. የትምህርት ደረጃ
አንደኛ ደረጃ የተማረ ዲግሪ
ሁለተኛ ደረጃ የተማረ ማስተር
ዲፕሎማ ዶክትሬት ድግሪ(PHD)እና ከዛበላይ
64
ክፍል 2 የአገልግሎት ጥራትና ተያያዥነት ያላቸው ጉዳዮች
ከዚህ በመቀጠል የቀረቡ ዐረፍተ ነገሮች በወጋገን ባንክ ላይ ያለዎትን ስሜት ያመለክታሉ፡፡ ስለዚህ ስለባንኩ
አገልግሎት ጥራት በእርስዎ አመለካከት ትክክለኛብለው የሚያስቡትን ከ 1-5 ከቀረቡት አማራጮች መካካል በመምረጥ
ምላሽ ይስጡ፡፡
1. እጅግ አልስማማም 2. አልስማማም 3. ገለልተኛ 4. እስማማለሁ 5 እጅግ እስማማለሁ፡
በእጅጉ አልስማማም ገለልተኛ እስማማለሁ በእጅጉ

የአግልግሎት ጥራት ገፅታዎቸ አልስማማም እስማማለሁ
(1) (2) (3) (4) (5)
1. የባንኩ አገልግሎት መስጫ መሳሪያዎች
ዘመናዊ ናቸው፡፡
2. የባንኩ አገልግሎት ቁሳቁሶች ሲታዩ
የሚስቡ ናቸው፡፡
3. የባንኩ ሰራተኞች ፕሮቶኮላቸውን/
ንፅህናቸውን የጠበቁ ናቸው፡፡
4. ባንኩ ቃል በገባው መሰረት
አገልግሎቶችን ያቀርባል፡፡
5. ባንኩ በአገልግሎት ቅሬታ ያላቸውን
ደንበኞች በፍጥነት ያነጋግራል መፍትሄ
ይሰጣል፡፡
6. ባንኩ አገልግሎቱን ገና ከመጀመሪያው
በትክክል ይፈፅማል
7. ባንኩ እፈፅማለሁ ብሎ ቃል በገባው ጊዜ
ውስጥ አገልግሎቶቹን ያቀርባል፡፡
8. ባንኩ ደንበኞች የሚሞሏቸው ቅፆች ላይ
ስህተት እንዳይገኝ ያበረታታል፡፡
9. ባንኩ ቅሬታም ሆነ አስተየየት ለመቀበል
የሚጠቅም የአስተያየት መስጫ ሳጥን
አለው፡፡
10. የባንኩ ሰራተኞች አገልግሎቶች
በትክክል መቼ እንደሚከናወኑ
ይነግርዎታል፡፡
11. የባንኩ ሰራተኞች ቀልጣፋ አገልግሎት
ይሰጥዎታል፡፡
12. የባንኩ ሰራተኞች እርስዎን ለመርዳት
ሁል ጊዜ ዝግጁ ናቸው፡፡
13. የባንኩ ሰራተኞች ደንበኞች በእነሱ
እንዲተማመኑ ያደርጋሉ፡፡
14. ከወጋገን ባንክ ጋር በሚያደርጉት
65
ግብይቶች እምነት ይሰማዎታል፡፡
15. የባንኩ ሰራተኞች ለእርስዎ ትህትናን
ያሳያሉ፡፡
16. የባንኩ ሰራተኞች ለእርስዎ ጥያቄዎች
ምላሽ ለመስጠት የሚያስችል እውቀት
አላቸው
17. ወጋገን ባንክ ለእርስዎ በግል ትኩረት
ይሰጥዎታል፡፡
18. ባንኩ ለሁሉም ደንበኞች አመቺ የሆነ
የስራ ሰአት አለው፡፡
19. ባንኩ ለደንበኞች ምቹ በሆኑ ቦታዎች
ላይ ይገኛል፡፡
20. ወጋገን ባንክ የእርስዎን የግል ፍላጐቶች
ያውቃል፡፡
21. የባንኩ ሰራተኞች የእርስዎን የተለያዩ
ፍላጎቶች ይገነዘባሉ፡፡
22. ባንኩ አገልግሎት ለመሰጠት አስፈላጊ
እና በቂ የሆኑ ሰራተኞች አሉት፡፡
23. የደንበኞች ጥያቄ በፍጥነት ይመልሳል፡፡
24. ባንኩ የተለያዩ የምልክት
መሳሪያዎችአሉት /ቦታዎችን የሚያሳዩ
አቅጣጫ ጠቋሚዎች/
25. የባንኩ ሰራተኞች ስህተት በሚፈጥሩበት
ጊዜ ፈጥነው ደንበኞችን ይቅርታ
ይጠይቃሉ፡፡
26. በአጠቃላይ በወጋገን ባንክ በሚሰጡ
አገልግሎቶች ረክቻለሁ፡፡
66
Appendix C: Interview with manager
Interview Guide - English language
Addis Ababa University School of Commerce

Department of Marketing Management
Dear interviewee,
I am conducting a research which shall be submitted in partial fulfillment of the requirements for
Master’s Degree in Marketing Management. The purpose of this study is to assess the service
quality and its effect on customer satisfaction - The case of Wegagen Bank Therefore, this is to
kindly request you to take some of your precious time to the interview. Your honest and accurate
response will make this study more valuable. Your responses are only meant for academic
purpose and will be kept confidential.
Thank you in advance for your time!
Elsa Habte
Elsahabte1@gmail.com
+251923709889
67
1. Did your bank conduct market research or customers’ need assessment for providing
better service? If yes, what improvements have been made?
2. Do you think service quality and customer satisfaction as an important strategy for your
bank? Explain?
3. What are the strategies applied by the bank to boost the quality service delivery of the
bank?
4. What are the measures that your bank is taking to improve customer satisfaction?
5. Employees’ attitude /behavior play a central role with regard to customer’s satisfaction
and quality service delivery. What strategies are followed in the bank to improve the
attitude of the employees in relation to customer service?
68

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ASSESSING THE EFFECT OF QUALITY ON CUSTOMER

SATISFACTION: THE CASE OF WEGAGEN BANK

Addis Ababa University School of Commerce

In Partial Fulfillment of the Requirements for the Award of Masters of Arts

By: Elsa Habte

Advisor: Teklegiorgis Assefa (Asst.Prof.)

Addis Ababa University

ASSESSING THE EFFECT OF QUALITY ON CUSTOMER

Approved by Board of Examiners

QUALITY ON CUSTOMER SATISFACTION: THE CASE OF WEGAGEN

Elsa Habte ––––––––––––––––––––– may 2014

EFFECT OF QUALITY ON CUSTOMER SATISFACTION : THE CASE

Thesis Advisor: ____________________________

Table 2.1 Nature of the Service Act…..…………………………………………………………9

Key words: Service quality, customer satisfaction, SERVPERF dimensions

1.1 Background of the Study

1.3 Objectives of the study

1.4 Definition of Terms

Customer Satisfaction; means an individual’s feeling of pleasure (or disappointment) resulting

SERVQUAL; a self-administered questionnaire purported to be a generic measure of service

1.5 Significance of the Study

1.6 Scope of the Study

1.7 Limitation of the Study

1.8 Organization of the Research Report

Table 2.1: Understanding the nature of the service act

NO Characteristics Resulting implications

1. Intangibility - Service cannot be inventories

1. Heterogeneous - Service delivery and CS depend on employee action

2. Inseparability - Simultaneous production and consumption

Source: Zeithaml and Berry,

2.4.1 SERVQUAL model

SERVIQUAL is a multi-item scale developed to assess customer perceptions of service quality

Figure 2.1 Dimension of service quality

Source: Zeithaml, and Betner, 2003

Tangible: encompasses physical facilities, equipment, and appearance of personnel.

Reliability: ability to perform the promised service dependably and accurately.

2.4.2 Gronroos’s Methodology

2.4.3 Cronin’s SERVPERF

SERVPERF only measures performance perceptions and operationalizes service quality as

Therefore, performance only measures should be preferred to avoid redundancy. Thus,

2.5 The Perceived Service Quality Model

The diversity of expectation definitions can be concluded that expectation is uncontrollable

2.5.2 Customer Perception

According to disconfirmation theory, the extent of satisfaction or dissatisfaction that a consumer

Any difference between them is referred to as disconfirmation. If the service experienced is

2.5.3 Customer satisfaction

2.6 Importance of quality of service:

Achieve returns of material: this is the provision of services characterized by high

2.7 Service quality in banking

2.8 The relationship between service quality and customer satisfaction

2.9Measuring Service Quality via Customer Satisfaction

3.1 Research Design

3.2 Sample and target population

3.3 Sampling Techniques

3.4 Source of Data

3.5 Instruments of Data Collection

3.7 Methods of Data Analysis

3.8 Reliability and Validity of the Research

3.9 Research Ethics

Table 4.1 Response rate of Questionnaires Administered

Percent 91.2 3.2 5.6

Source: survey result (2014)

4.1 Personal Profile of the Respondents

Responsiveness .432 .505 1

Assurance .426 .426 .655* 1

Empathy .404 .396 .488 .545 1

overall .506 .509 .613 .635 .663** 1